Solar panel profitability

In this chapter we will treat two example case studies. Depending on your local climate conditions, electricity prices and state government regulations (see DSIRE for a per-state overview), your mileage may vary considerably!

In the first example, we will assume an individual living in Florida has the desire to install a 1kWp solar panel system. As reported by the Energy Information Administration, the average residential energy price in Florida was $0.12/kWh in january 2009. Since one kilowatt peak is the maximum yearly production of a given solar panel under ideal conditions, we still need to derate the system (see the articles on solar panels and solar cell efficiency for more information). Taking into account the effects of temperature and DC to AC conversion loss, we arrive at an estimated derate factor of 0.8. This effectively means that our 1kWp system is rated at 800W and thus generates 800W under average, non-ideal conditions. For the next step, determining the amount of sunlight, we use the below nationwide insolation map to derive that Florida receives approximately 5kWh/m2/day, which translates to 5 hours of calibrated sunshine per day. This one-to-one conversion between insolation and hours of sunshine is perfectly fine, since a solar panel is tested at an insolation of 1 kW/m2. On a yearly basis, this means we receive on average 1800 hours of sunlight. Multiplying 1800 hours by the system rating of 800 Watts yields a total annual power production of 1800 * 800 = 1440 kWh. Now, to calculate our annual savings we need to multiply this production with the energy price of $0.12: 1440kWh*0.12kWh = $173.

Our second example is about a Wisconsin family, also interested in purchasing a 1kWp solar panel system. After derating (see first example), this system is rated at 800 Watts. Using the above figure, we derive that Wisconsin receives 4kWh/m2/day. This translates to four hours of direct sunlight per day, or 1400 hours of direct sunlight per year. Our system will thus annually yield 1400*800 = 1100 kWh worth of solar power per year. Using the Energy Information Administration table we derive an electricity price of 12 cents for Wisconsin. Our total annual savings are therefore 1100kWh * $.12/kWh = $132. As expected, this is lower than in Florida, but not shockingly so!

Nationwide insolation map

PV solar radiation per square meter of solar panel per day

Why we need the government

A 1kWp solar power system will set you back approximately $5000 (including installation and delivery). In our Flordia example, this means it will take $5000/$173 = 29 years to break even. Assuming a panel lifetime of 20 years, this is unacceptable. This is where the government step in, providing a 30% tax credit. The tax credit will effectively reduce the price of the system to $3500, bringing the break-even point to just over 20 years. Unfortunately, there is still no profit to be made (besides the benefit to the environment, that is!).

Fortunately, several states are working on a so-called feed-in tariff, which allows you to sell your solar power to the utility at well above-market prices. Only in the state of California has such legislationg already been enacted, with solar panel owners receiving as much as $0.32/kWh for their cleanly produced energy. If we were to impose such regulations on Florida as well, this would mean our annual savings will increase from $173 to a whopping 1440kWh*$0.32 = $461! We now only need to wait 3500/461 = 8 years (10 years for the Wisconsin example) before our solar panels start generating a $461/year profit! A sound investment!

Conclusion: in order to make solar panels a viable option, we need government support. While CA is the only state featuring feed-in tariff legislation, as many as 11 state governments are currently considering imposing a feed-in tariff. Contact your local government to express your support of feed-in tariff legislation!